DB Plans Tap New Investment Strategies to Meet Funding
Obligations

February 22, 2007 (PLANSPONSOR.com) - Funding
requirements set by the Pension Protection Act and new
accounting rules have propelled companies to consider risk
management and investment strategies that they once shied
away from for their defined benefit plans, according to a
recent survey by Pyramis Global Advisors.

According to the survey of 214 directors of the
largest DB plans in the U.S., half of all corporate DB
plans said they were using or considering
liability-driven investing (LDI) (See
Cover:
Corporate Plan Sponsor of the Year: Slow and Steady
), and for the first time, corporate DB plans’ allocation
to fixed income surpasses that of public DB plans.

In terms of investment strategies, corporate DB
plans have started to loosen the reins and allow
investment managers to try new approaches to increase
returns, with 63% of corporate DB plans using or
considering 130/30 equity portfolios, 20% saying they
plan to hike allocations to non-U.S. equity and 19%
planning to increase real estate allocations.

Public DB plans have also been recently handed some
new accounting rules that will require them to account
for future health-care liabilities, which public plan
sponsors estimate to top $1 billion, according to
Pyramis.

More than half of public DB plans have cited a “low
return environment” as their biggest concern. In order to
boost returns, 80% of large public plans are using or
considering alpha programs. Pyramis also said that asset
allocation in international equities for public DB plans
surpassed allocation to international equities for
corporate plans.